Beginning today, the U.S. Small Business Administration’s (SBA) 504 loan program will begin accepting applications from many more small businesses to refinance existing real estate debt after relaxing the regulations on loan qualifications. The SBA received extensive feedback from the 504 industry, banks and small businesses on a number of issues with their initial regulations over the past six months. They also noted the low volume of refinance loans that have been processed since the program’s inception last February and decided to revise a number of restrictions that were part of their initial regulations.

The revamped refinance program will allow many thousands more small businesses to take advantage of long term, fixed rate loans to refinance maturing real estate debt. Recent interest rates – including fees – were as low as 5.05% for SBA 504 refinance loans last month. Small businesses need to move fast, however, if they wish to take advantage of this financing since this is a temporary program that is set to expire on September 27, 2012.

Certified Development Companies, or CDCs, are the SBA’s conduit for providing 504 loans and will be the point of contact for obtaining a refinance loan for existing real estate debt. These refinance loans are structured like traditional 504 loans. Typically, a bank or third party lender provides at least 50% of the project cost, the SBA – through a CDC – provides up to 40% of the project cost and the small business borrower must provide equity of at least 10%. This equity may be drawn from the existing asset equity, rather than new cash injection.

A major change in the regulations enables a small business to refinance not only existing debt but, more importantly, use excess equity to obtain working capital that can be used for financing of eligible business expenses. Borrowers will be able to refinance up to 90% of the current appraised property value.

The SBA 504 refinance program is only for businesses that can demonstrate that their loans are current and that they have successfully made all required payments under original or modified bank terms. There is a new, independent appraisal required for all projects and existing 504 projects and government-guaranteed loans are not eligible to be refinanced.

Certified Development Companies have been working especially hard to assist struggling small businesses over the past couple years. These much anticipated revised regulations will provide relief to small business owners who are laboring under onerous interest rates or facing maturing debt on their buildings.

The National Association of Development Companies (NADCO) – the trade association representing the nation’s CDCs – has been actively communicating with SBA regulators in an effort to improve the initial program unveiled in the spring. NADCO President, Chris Crawford, noted, “We are very pleased with the revised regulations and expect to see thousands of small businesses improve their cash flow and extend existing debt under this recently enhanced program that was authorized by Congress as part of the Small Business Jobs Act in September 2010.” Crawford predicts a surge of new inquiries from small businesses and feels the affordable 504 refinance option will keep thriving businesses from closing that are unable to refinance maturing debt.

Small business owners who wish to discuss their loan refinancing options should contact a Certified Development Company in their area. Visit the NADCO website at http://www.nadco.org for a list of CDCs throughout the country.

About the National Association of Development Companies (NADCO):

Created in 1981, the National Association of Development Companies is the trade association for America’s Certified Development Companies (CDCs). Certified by the U.S. Small Business Administration, CDCs are community-based economic development organizations that serve their local communities and states, and are dedicated to the promotion of small business expansion and job creation through SBA’s 504 Loan Program. In addition to the 504 program, many CDCs also provide small businesses with access to other Federal, state and local economic development loan programs. These programs provide both long and short term funding for borrowers.

Based in the suburbs of Washington, D.C., NADCO provides legislative and regulatory support for the 504 Loan Program on behalf of CDCs, the program’s lending partners (including first mortgage lenders, attorneys and others allied to the industry), and 504 small business borrowers. For more information, please call (703) 748-2575 or visit http://www.nadco.org .